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Playing away
My client is a UK resident taxpayer who was employed abroad by a European Union sporting club. He was granted a testimonial year by his foreign club and in that year several events took place that generated a significant amount of money.
The proceeds were tax free in the foreign country. He now wants to transfer the money to his UK personal bank account.
I am aware of the rules around UK sportspersons who are granted testimonials in the UK, and the establishment of testimonial committees who can then pay money under PAYE to the sportsperson with a potential £100,000 tax free exemption.
Do readers think that this exemption would apply to my client’s case? Would he need to account for the income under self assessment and claim a £100,000 exemption, or does he have to set up a UK testimonial committee and pay the income out under PAYE?
I look forward to any advice from Taxation readers.
Query 19,539 – Untested.
Renovation
William is UK resident and domiciled. He owns a number of buy-to-let properties as investments.
In 2005 he bought a property for £120,000. The property was always let to unconnected tenants on commercial terms and was never used as his main residence.
In March 2019 the tenants vacated the property and William decided to sell it. At that point the property was in poor condition and was valued by an estate agent at £220,000.
William decided to refurbish the property before sale and it was completely redecorated, rewired and a new kitchen, bathroom and flooring put in at a total cost of £32,000. The property was then sold in October 2019 for £283,000.
My question for Taxation readers concerns the tax treatment of the refurbishment costs.
The costs appear to be primarily of a revenue nature in that they related to the replacement or repair of existing items or brought them up to current standards. However, all the costs were incurred after the letting had ceased so I do not see how they can be connected with the rental income.
I have the following questions:
- Can a deduction be claimed against the capital gain?
- Could the expenses be offset against profits on William’s other properties?
- Could I argue that the refurbishment was a trading transaction and that the property was appropriated to trading stock when the tenants vacated it? In which case do I have a capital gain of £100,000 (220,000 – 120,000) in March 2019 and a trading profit of £31,000 (283,000 – (220,000 + 32,000)) in October 2019?
I look forward to hearing from readers and hope they can clarify the position here.
Query 19,540 – Developer.
MTD penalty
I have spent the past year trying to make sure my clients comply with making tax digital for VAT, grateful for the assurance that there was a 12-month ‘soft landing’ during which the full rigour of the law would not be enforced in some aspects.
Now we have reached this point in time and I have realise that one of my smaller VAT-registered clients has just exceeded the registration threshold for the first time. I presume that they do not get a ‘soft landing’ but must comply in full from the beginning. However, I am not sure what happens if they do not, and instead file their VAT returns using the same system that they have operated in the past.
What sanction can HMRC impose? If it is simply a ‘failure to deliver a return’, the sanction is default surcharge and that is not levied if the trader has paid the tax on time.
I will encourage my client to comply, but I would like to be able to explain the ‘or else’ that HMRC might apply and hope Taxation readers in a similar position are able to provide some guidance.
Query 19,541 – Technophobe.
Margins
I have a client who trades as a second-hand car dealer.
Most of his purchases are from private individuals in the UK and he accounts for VAT by using the second hand margin scheme; in other words, accounting for VAT on the profit margin.
On occasions, he imports vehicles from other EU countries and never pays VAT on these vehicles because he buys them from other dealers and gives them his UK VAT number. He then accounts for VAT on the profit margin again when he sells them on in the UK.
However, I have a feeling this is wrong because some of the purchase invoices from the EU suppliers refer to a ‘margin scheme’, but this is not the case for all of them.
Does he have a problem and how should it be corrected? Readers’ thoughts would be much appreciated.
Query 19,542 – Reliant Robin.
